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The general health of the UK’s retail sector is at an all-time low, but things are looking positive for the food industry moving into the third quarter of 2020.
That’s according to the latest health assessment from the KPMG/Ipsos Retail Think Thank (RTT), which revealed that the health of the industry severely declined in the second quarter of 2020.
RTT’s Retail Health Index (RHI), which assesses demand, margin and cost, fell by 10 points to a record low of 61. April’s performance was “an unimaginable low”, yet figures seemed to improve month-on-month. There have been more promising signs in recent weeks, with a June sales increase of 3.4 percent offering a glimmer of hope.
Overall, the sector’s health was largely weighed down by forced closures of large swathes of the industry as well as a prolonged lockdown. As a result, food retailers continued to show strength compared to non-food retailers, likely owing to the closure of hospitality outlets that led to more consumers dining at home.
With the lifting of lockdown, reopening of retail outlets and easing of restrictions, however, the third quarter looks to be more promising. RTT predicts that “pent up demand” from consumers will help boost the industry over the coming months, in turn leading to a three-point increase in the sector’s health.
“With lockdown restrictions easing and sales up, it’s clear that consumers are starting to unleash pent up demand,” James Sawley, head of retail and leisure at HSBC and RTT member, said. “They are finding ways to treat themselves, perhaps even diverting spend that would have otherwise gone towards a summer holiday. That will naturally be a real opportunity for retailers – provided they can capture it – but it’s unlikely to undo the damage of sales lost earlier in the year. The key question now is: how long will the release of pent up demand continue? There are naturally real concerns growing around the threat of unemployment and the possibility of local resurgences of COVID-19, which retailers will need to be on the alert for.”
Moving forward, as food retailers continue to balance out sales with profit, RTT advises monitoring costs, particularly as furlough schemes unwind and rent demands return. September is also expected to be a key month in terms of sales volumes, though these volumes could be impacted by the unwinding of the furlough scheme and the possible return of consumer anxiety.
Continuing to put staff and customer safety first will help to improve consumer confidence. In fact, a recent survey by banking tech firm Cennox showed that 69% of shoppers would be willing to switch from their regular supermarket if they deemed safety measures to be inadequate.
Promoting value for money and the provenance of items could also help to boost sales for food retailers. And, while online sales have fallen slightly, they still account for a large share of food shopping. For customers that are anxious about shopping in-store, home delivery and click-and-collect services could continue to encourage loyalty whilst offering retailers a second sales channel.
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